FAT Brands Results

FAT Brands Inc. Announces Fiscal Third Quarter 2017 Financial Results

System-wide sales of $32.9 million, up 7.5% y/y - System-wide restaurant count of 174 locations, as compared to 178 locations in the third quarter of last year

FAT Brands

FAT (Fresh. Authentic. Tasty.) Brands Inc. (NASDAQ:FAT) today announced financial results for its 13-week fiscal third quarter ended September 24, 2017.

Andy Wiederhorn, President and CEO of FAT Brands, commented, “We are proud of our third quarter results, which included same-store sales growth of 3.8% at Fatburger and 3.9% at Buffalo’s, despite what remains a challenging industry backdrop. These results continue the trend of seven consecutive years of positive same-store sales for both Fatburger and Buffalo’s franchisees domestically.”

Wiederhorn continued, “In October we completed our initial public offering with the goal of growing our portfolio of fresh, authentic, and tasty brands. We have developed a strong and actionable pipeline of targets, and recently announced our first deal as a public company, the acquisition of Hurricane Grill & Wings, which is expected to close later this year. There are a number of attractive opportunities to consolidate brands onto our platform as part of our asset light growth strategy, which we believe will drive meaningful value for our shareholders over the long term. We are just getting started.”

“FAT Brands is built for growth. Our robust management and systems platforms support the expansion of our existing brands, while enabling the accretive acquisition and efficient integration of additional restaurant concepts. This scalable platform generates significant efficiencies in franchise support services and corporate overhead. Pro forma for the Hurricanes acquisition and expected synergies, we expect annualized revenue to exceed $17 million, and annualized adjusted cash earnings of greater than $11 million, or $1.10 per share,” Wiederhorn concluded.

The Company was formed as a Delaware corporation on March 21, 2017 as a wholly owned subsidiary of Fog Cutter Capital Group Inc. (“FCCG”). The Company was formed for the purpose of completing a public offering and related transactions, and to acquire and continue certain businesses previously conducted by subsidiaries of FCCG. These planned transactions have occurred subsequent to the effective date of the accompanying financial statements, and as a result, the statements of operations, changes in stockholder’s equity, and cash flows reflect that there have been no operating activities in this entity from formation through September 24, 2017.

The following highlights present the summary historical financial data for Fatburger North America, Inc. and Buffalo’s Franchise Concepts, Inc., which were historically under common control of FCCG and are the predecessors of the issuer, FAT Brands Inc., for financial reporting purposes. The historical financial and other data of Fatburger North America, Inc. and Buffalo’s Franchise Concepts, Inc. have been combined on a pro forma basis through mathematical addition to show how FAT Brands Inc. would have performed if simply combined as one operating entity for the periods presented. These results are not representative of the go forward business due to the subsequent events described below, and do not include results for Ponderosa and Bonanza Steakhouses.

Fiscal Third Quarter Highlights for Predecessor

  • System-wide sales of $32.9 million, up 7.5% y/y
  • System-wide restaurant count of 174 locations, as compared to 178 locations in the third quarter of last year
  • Same-store sales growth (1) of 3.8% at Fatburger, 3.9% at Buffalo’s
  • Total Revenue of $2.4 million versus $3.0 million in the prior year period
  • Operating Income of $1.6 million versus $2.1 million in the prior year period
  • Net Income of $1.0 million versus $1.3 million in the prior year period
  • EPS of $0.10 as compared to $0.13 in the prior year period
  • EBITDA, a non-GAAP measure, of $1.6 million, as compared to $2.1 million in the prior year period
         

(1)

  Excludes 2 Fatburger locations that were adversely affected by ongoing construction, and 4 Buffalo’s locations with extraordinary adverse conditions from construction, changes in alcohol laws and political sanctions affecting supply chain
 

Subsequent Events

On October 20, 2017, the Company completed its initial public offering, raising $21.2 million in net proceeds. In connection with the IPO, FCCG contributed its two operating subsidiaries, Fatburger North America, Inc. and Buffalo’s Franchise Concepts Inc. to the Company. Additionally, FCCG consummated the acquisition of Homestyle Dining LLC, and immediately contributed its franchising subsidiaries, Ponderosa Franchising Company; Bonanza Franchising Company; Ponderosa International Development, Inc.; and Puerto Rico Ponderosa, Inc. to FAT Brands.

On November 15, 2017 the Company announced that it has signed a definitive agreement to acquire Hurricane Grill & Wings, a Florida-based restaurant brand with over 60 units open or under construction. The acquisition is expected to close in 2017, subject to customary closing conditions including the receipt of financing.

Fiscal Third Quarter Highlights Pro Forma for IPO and Acquisition of Ponderosa and Bonanza Steakhouses

The unaudited pro forma condensed consolidated financial statements are based on FAT Brands’, Fatburger’s, Buffalo’s and Ponderosa’s historical financial statements as adjusted to give effect to the acquisition of Ponderosa. The unaudited pro forma consolidated statements of operations for the 13 weeks ended September 24, 2017, and the 13 weeks ended September 25, 2016 give effect to the acquisitions as if they had occurred on December 28, 2015.

Please note the pro forma results are before expected synergies, and do not account for the acquisition of Hurricane Grill & Wings, which is expected to close later this year.

  • System-wide sales of $75.9 million, down 0.1% y/y
  • System-wide restaurant count of 292 locations, as compared to 307 locations in the third quarter of last year
  • Same-store sales growth (1) of 3.8% at Fatburger, 3.9% at Buffalo’s, and negative 3.5% at Ponderosa
  • Total Revenue of $3.5 million versus $4.1 million in the prior year period
  • Operating Income of $2.1 million versus $2.6 million in the prior year period
  • Net Income of $1.5 million versus $1.9 million in the prior year period
  • EPS of $0.15 as compared to $0.19 in the prior year period
  • EBITDA, a non-GAAP measure, of $2.0 million, as compared to $2.6 million in the prior year period
         

(1)

  Excludes 2 Fatburger locations that were adversely affected by ongoing construction, and 4 Buffalo’s locations with extraordinary adverse conditions from construction, changes in alcohol laws and political sanctions affecting supply chain
 

Key Financial Definitions

New store openings - The number of new store openings reflects the number of stores opened during a particular reporting period. The total number of new stores per year and the timing of stores openings has, and will continue to have, an impact on our results.

Average unit volumes - Average Unit Volumes for any 12-month period consist of the average sales of all stores over that period that have been open a full year. Average unit volumes are calculated by dividing total sales from all stores open a full year by the number of stores open during that period. The measurement of AUVs allows us to assess changes in guest traffic and per transaction patterns at our stores.

Same-store sales growth – Same-store sales growth reflects the change in year-over-year sales for the comparable store base, which we define as the number of stores open for at least one full fiscal year. Given our focused marketing efforts and public excitement surrounding each opening, new stores often experience an initial start-up period with considerably higher than average sales volumes, which subsequently decrease to stabilized levels after three to six months. Thus, we do not include stores in the comparable base until they have been open for at least one full fiscal year. We expect that this trend will continue for the foreseeable future as we continue to open and expand into new markets.

About FAT (Fresh. Authentic. Tasty.) Brands

FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets and develops fast casual and casual dining restaurant concepts around the world. The Company currently owns five restaurant brands, Fatburger, Buffalo’s Cafe, Buffalo’s Express and Ponderosa & Bonanza Steakhouses, that have approximately 300 locations open and 300 under development in 32 countries. 

                               

Pro Forma Combined Income Statement for Fat Brands

 
(In thousands)
13 weeks ended September 24, 2017 13 weeks ended September 25, 2016
Fatburger Buffalo’s Ponderosa Combined Fatburger Buffalo’s Ponderosa Combined
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ 1,205 $ 308 $ 1,106 $ 2,619 $ 1,162 $ 328 $ 1,183 $ 2,673
Franchise fees 529 325 5 859 1,453 - 8 1,461
Management fee   17     -   -     17     14   -   -   14
Total revenues 1,751 633 1,111 3,495 2,629 328 1,191 4,148
 
General and administrative expenses   552     187   674     1,413     755   125   644   1,524
 
Income from operations   1,199     446   437     2,082     1,874   203   547   2,624
 
Other income (expense)
Interest income - - 19 19 - - 5 5
Other income (expense)   (27 )   -   (13 )   (40 )   3   -   -   3
  (27 )   -   6     (21 )   3   -   5   8
 
Income before income tax expense 1,172 446 443 2,061 1,877 203 552 2,632
 
Income tax expense   444     142   18     604     673   66   29   768
 
Net income $ 728   $ 304 $ 425   $ 1,457   $ 1,204 $ 137 $ 523 $ 1,864
                               
(In thousands)
39 weeks ended September 24, 2017 39 weeks ended September 25, 2016
Fatburger Buffalo’s Ponderosa Combined Fatburger Buffalo’s Ponderosa Combined
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of operations data:
 
Revenues
Royalties $ 3,580 $ 920 $ 3,202 $ 7,702 $ 3,540 $ 1,021 $ 3,431 $ 7,992
Franchise fees 1,683 430 5 2,118 3,128 255 19 3,402
Management fee   47     -   -   47     59     -   -   59
Total revenues 5,310 1,350 3,207 9,867 6,727 1,276 3,450 11,453
 
General and administrative expenses   1,852     503   2,009   4,364     2,365     491   1,965   4,821
 
Income from operations   3,458     847   1,198   5,503     4,362     785   1,485   6,632
 
Other income (expense)
Interest income - - 19 19 - - 18 18
Other income (expense)   (23 )   -   -   (23 )   (32 )   36   -   4
  (23 )   -   19   (4 )   (32 )   36   18   22
 
Income before income tax expense 3,435 847 1,217 5,499 4,330 821 1,503 6,654
 
Income tax expense   1,264     277   52   1,593     1,613     269   80   1,962
 
Net income $ 2,171   $ 570 $ 1,165 $ 3,906   $ 2,717   $ 552 $ 1,423 $ 4,692
 
     

EBITDA Reconciliation

 
13 weeks ended September 24, 2017 13 weeks ended September 25, 2016
Fatburger     Buffalo's     Ponderosa     Combined Fatburger     Buffalo's     Ponderosa     Combined
 
(in thousands)
 
Net income $ 728 $ 304 $ 425 $ 1,457 $ 1,204 $ 137 $ 523 $ 1,864
Depreciation expense - - - - - - - -
Interest income - - 19 19 - - 6 6
Income tax expense   444   142   24   610   673   66   29   768
EBITDA $ 1,172 $ 446 $ 430 $ 2,048 $ 1,877 $ 203 $ 546 $ 2,626
     
39 weeks ended September 24, 2017 39 weeks ended September 25, 2016
Fatburger     Buffalo's     Ponderosa     Combined Fatburger     Buffalo's     Ponderosa     Combined
 
(in thousands)
 
Net income $ 2,171 $ 570 $ 1,165 $ 3,906 $ 2,717 $ 552 $ 1,423 $ 4,692
Depreciation expense - - - - - - - -
Interest income - - 19 19 - - 18 18
Income tax expense   1,264   277   52   1,593   1,613   269   80   1,962
EBITDA $ 3,435 $ 847 $ 1,198 $ 5,480 $ 4,330 $ 821 $ 1,485 $ 6,636
 



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